Stocks, U.S. Futures Fall on Debt Concern as Irish Bonds Gain
Nov. 22 (Bloomberg) -- Stocks in Europe fell for a second day and U.S. index futures retreated after Ireland's bailout failed to assuage concern the region's debt crisis may spread. Ireland's 10-year bond pared most of its earlier gain.
The Stoxx Europe 600 Index lost 0.6 percent at 8:30 a.m. in New York. Standard & Poor's 500 Index futures sank 0.4 percent. The 10-year Irish bond yield dropped eight basis points to 8.27 percent, after sliding to as low as 8.06 percent. The cost of protecting against a default by Ireland was little changed, erasing an earlier decline. The 10-year U.S. yield lost one basis point to 2.86 percent before a Treasury sale of $99 billion of notes this week.
Ireland became the second euro member to seek a rescue from the European Union and the International Monetary Fund, preventing a run on its banks. Moody's Investors Service said it may lower Ireland's credit rating by more than it previously anticipated as the aid plan threatens to boost the country's debt. While Portugal's debt yields fell, the country's bond risk increased, helping fuel speculation the debt crisis isn't over.
"The reality is that the structure is in place at the moment to put countries in life support but the missing link still remains the bigger issue of what do you do after that," Cambiz Alikhani, a portfolio manager at Iveagh Wealth Fund in London, said in an interview. "Until that question is answered we are still in this rolling bailout situation which has been ongoing since 2008."
Irish Banks Tumble
Europe's Stoxx 600 Index erased gains of as much as 0.8 percent. Irish banks led declines on concern that a bailout will dilute existing investor stakes. Bank of Ireland tumbled 20 percent, while Irish Life & Permanent Plc sank 24 percent. Porsche SE led auto stocks higher, climbing 5.6 percent, after Bank of America Merrill Lynch recommended buying the shares, saying the German sports-car maker probably won't merge with Volkswagen AG. The MSCI Asia Pacific Index rallied 0.7 percent.
Developing-nation stocks erased earlier gains, with the MSCI Emerging Markets Index trading 0.2 percent lower. Turkey's ISE National 100 Index dropped 1.4 percent and Brazil's Bovespa slipped 0.7 percent. The Bombay Stock Exchange's Sensitive Index jumped 1.9 percent, its biggest advance since Nov. 4, with Infosys Technologies Ltd., the country's second-largest software exporter, rising 2.6 percent.
The S&P 500 index has risen 17 percent from its 2010 low on July 2 on optimism the Federal Reserve's asset-purchase plan will stimulate growth and as quarterly results at companies surpassed analyst projections. The index had fallen the most in almost three months on Nov. 16 amid speculation the debt crisis in Europe is worsening and that China will curb lending to slow inflation.
Ireland, Portugal
Credit-default swaps tied to Irish government bonds rose 1 basis point to 508, according to CMA, a data provider. The yield on 10-year Portuguese bond declined 17 basis points to 6.79 percent. Default swaps on Portugal jumped 29.5 basis points to 447 and Greece was 36 basis points higher at 1,004, according to CMA. The Markit iTraxx Crossover Index of swaps on 50 mostly junk-rated European companies declined 3 basis points to 454, Markit Group Ltd. prices show.
The European Central Bank bought Irish government bonds today, according to three people with knowledge of the transactions. A spokeswoman for the ECB in Frankfurt declined to comment.
The yield on the two-year Treasury note was little changed at 0.513 percent. The U.S. auctions $35 billion of the debt today, followed by sales of five-year securities tomorrow and seven-year notes in two days.
The New Zealand dollar dropped against all 16 of its most- traded peers, weakening 0.3 percent to 77.61 U.S. cents. S&P lowered the nation's credit outlook on its AA+ rating to negative, saying in a statement that "the main risk to the ratings would be a significant weakening in the credit quality of New Zealand's banking sector."
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Paul Sillitoe in London at psillitoe@bloomberg.net
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